Support Rulemaking Petition on Corporate Political Spending

A group of ten very prominent corporate and securities law experts submitted a formal rulemaking petition to the SEC last week urging the Commission to develop rules requiring public companies to disclose the use of corporate resources for political activities to shareowners. Please take a few minutes to join with me writing an e-mail to the SEC in support of their petition and the important issue seeks to address.

The petition presents data indicating that public investors have become increasingly interested in receiving information about corporate political spending. For example, “as early as 2006, polls indicated that 85% of shareholders held the view that there is a lack of transparency surrounding corporate political activity.” “During the 2011 proxy season, out of the 465 shareholder proposals appearing on public-company proxy statements, 50 proposals were related to political spending, and more proposals of this type were included in proxy statements than any other type of proposal.” A large number of public companies have already voluntarily changed their disclosure practices to provide such information to shareowners, including 60% of the S&P 100.

In Citizens United v. FEC the US Supreme Court noted that shareowners could “determine whether their corporation’s political speech advances the corporation’s interest in making profits” and could discipline directors and executives who use corporate resources inconsistently with shareowner interests. However, unless shareowners have information about a company’s political speech and expenditures we will be unable to know whether such speech “advances the corporation’s interest in making profits” and will be unable to discipline directors and executives. The petition discusses the following specific elements:

First, we expect that the Commission will be required to determine whether certain de minimis corporate spending on political activity should be exempt from disclosure. We encourage the Commission to adopt such a de minimis exception. We note, however, that the symbolic significance of corporate spending on politics suggests setting an appropriately low threshold. The Commission’s existing rules, such as its rules concerning disclosure of compensation and of related-party transactions, may offer a sound starting point for the development of such an exception.

Second, the Commission will likely be required to determine how often public companies should be required to disclose corporate spending on politics to shareholders. Highly frequent reporting would be disruptive and costly for many companies, and the Commission should, where possible, use existing disclosure mechanisms to minimize the costs of the rule. Thus, although the exact design of the proposed rules is beyond the scope of this petition, we encourage the Commission to use the existing proxy-disclosure regime as the method for providing investors with this information.

Third, we expect that the Commission will determine the types of political spending subject to disclosure. In particular, the Commission may consider whether contributions that are restricted from political use will be subject to these rules. On the other hand, there are cases, such as corporate contributions to intermediaries that spend a large fraction of their funds on politics, for which inclusion within the scope of the Commission’s rules seems warranted. To address less obvious cases, the Commission may wish to adopt criteria for determining the types of spending subject to disclosure. Overall, the Commission should delineate the scope of the expenditures subject to disclosure to address potential problems of over- or under-inclusion.

Please send e-mails in support of the petition to rule-comments@sec.gov. The public is encouraged to submit comments on proposed rules. Here your options.

All submissions should refer to File Number 4-637. This file number should be included on the subject line if e-mail is used and that is the method I recommend. To avoid duplication or work at the SEC, use only one method. The Commission will post all comments on petitions on the Commission’s Internet website. Comments are also available in the Commission’s Public Reference Room, 100 F Street, NE, Washington, DC, 20549, on official business days between the hours of 10:00 am and 3:00 pm.

I am an individual investor concerned with how the corporations I invest in are spending corporate funds on political activities. I write in support of a petition by the Committee on Disclosure of Corporate Political Spending, File Number 4-637. In Citizens United v. FEC the US Supreme Court noted that shareowners could “determine whether their corporation’s political speech advances the corporation’s interest in making profits” and could discipline directors and executives who use corporate resources inconsistently with shareowner interests.

However, unless shareowners can easily access information about a company’s political speech and expenditures we will be unable to know whether such speech “advances the corporation’s interest in making profits” and will be unable to discipline directors and executives. The rulemaking sought by the petitioners would address that issue by giving shareowners the information we need to hold the managers and directors of our companies accountable.

Citizens United has made the issue of independent expenditures, either directly or indirectly, an important one for companies. We’re heavily involved in planning for the 2012 proxy season. There will be a significant number of companies engaged…

Last year, CPA co-authored with The Conference Board, an independent business membership and research association, a Handbook on Corporate Political Activity. The Conference Board also established a committee of Fortune 500 companies “to develop a set of ‘prevailing practices’ that take into consideration the risks and opportunities of political-spending decisions,” according to a press release. In addition to submitting a report on corporate political spending, the Committee will maintain a website where resources on the issues can be accessed.

Supporting comments reached one million in 2014. Keep them coming. They can’t ignore us forever.

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